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How SBC (AT&T) Pillaged South Africa's Economy
Kifoth writes "For 8 years, SBC and Telekom Malaysia controlled South Africa's only telecommunications company, Telkom. Telkom had a government granted monopoly in order for it to connect the large parts of South Africa that had been neglected under apartheid. Instead of helping, SBC abused their position and raised Telkom's prices to be among the highest in the world. The billions they made here ultimately went to fund their AT&T merger. From the article: 'SBC, described as "congenitally litigious", is said to have played a major role in the failure of South Africa's telecoms policy to develop a competitive telephone service. Under SBC's control Telkom not only failed to meet its roll-out obligations but behaved "as a tax on industry and a drag on economic growth."'"
Seriously, I didn't see this one coming.
"16MB (fuck off, MiB fascists)" - The Mighty Buzzard
How South Africa's Government Pillaged South Africa's Economy
they hate black people.
This shows why monopolies are bad and a more liberal economic policy is better
Well if you set up a monopoly it will be abused, you need very strong regulators to keep anything clean. Doesn't matter if its a state run monopoly (NHS, BT (before privatisation), British Rail etc) or a granted monopoly.
You should blame the politicians who voted to allow the monopoly deal in the first place. Do you believe for one second that they did not know what they were doing?
As much as I hate government interferance in business, if you're going to have a government granted monopoly you should have government set prices.
Yeah, totally.
You're right, of course.
CLEARLY, those who actually executed the bribes are not at fault in this case, even if it was illegal.
A company with a "government granted" monopoly abused it. Shocking!
Incidentally, any true monopoly must be government granted. Without the government's force to keep competition away, it's merely a really effective competitor in an open market, like Wal-Mart.
A monopoly, whether government owned (e.g. the US Post Office) or government granted (e.g. AT&T and the Baby Bells in the US, before cellphones, cable company phone service, etc.), is not required to innovate and improve to retain customers, like a free-market business is. Because of this they will tend to deliver a lower quality product at a higher price.
P.S. Blaming big business for acting big business is like blaming a rattlesnake for biting you. They're doing exactly what's expected of them, and you're a fool if you think they are supposed to care more about you than their shareholders, and maybe employees. That's why you elect a government and give them the power to enforce oversight in your best interests.
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
Because this is a discussion about AT&T and South Africa. The poster used this as an example of "capitalism gone awry" which it is not. It would be closer to fascism than capitalism. A central authority made a decision for the entire country, leaving one player in place to implement a system. Nowhere does this remotely look like capitalism.
See my journal for slashdot ID's by year. Mine created in 2005. http://slashdot.org/journal/289875/slashdot-ids-by-year
However, most of these companies were also involved in making military stuff that propped up the apartheid regime. Likely they were "punished", to the detrament of all.
Engineering is the art of compromise.
Heh... the only problem with that is the fact that the vast majority of our people are afraid of change from the ANC to another party. I guess mostly because they are afraid of another Apartheid. However they must realise that our current government pretty much sucks in a lot of ways and maybe a change is needed to make our country stronger and healthier. Or maybe the ANC could start actually doing something for us.. Our internet here isn't great at all.. With 1Mbps - 4Mbps ADSL being the latest thing coming out just recently. And until we see another telecommunications company coming along to help us we'll be stuck with the wonderful prices from Telkom...
Pillaged is such a harsh word. I prefer the phrases "shareholder value" and "market economy".
In a place like South Africa, only a government regulated monopoly would be interested in providing telecom to a lot of very poor people with very poor credit rating. Free market companies would just walk away from that because it makes no business sense.
Engineering is the art of compromise.
... I have to say that Telkom is absolutely terrible. Have a look here for more info.
Telkom have consistently been a stumbling block to technological progress in the country, especially with regards to internet access. Telkom owns all the international links to the rest of the world from SA, and most of the bandwidth and international calls have to be routed through them. In fact, the price of ADSL has been so prohibitive that many individuals have pursued cellular alternatives, paying per MB, for light browsing instead.
While it's easy to criticise the private companies who have been managing it, Telkom is a parastatal, and not wholly private; roughly 39% is still owned by the South African government, so I'm fairly certain they weren't too unhappy about the affair. There has been evidence of cronyism at the company, too, most likely as a direct result of this: in 2004 a government pension fund was used "to buy telecoms shares for a group of former government officials". This was part of the government's Black Economic Empowerment (BEE) requirements that firms need to be 1/4 black owned before 2010, and falls within a pattern shown, by 2004 government surveys, that "68 percent of BEE deals went to just 6 black-owned businesses, all of which were owned by top members of the ANC party."
The whole thing stinks, and Saffas get screwed, as usual.
'If Christ had tweeted the sermon on the mount, it might have lasted until nightfall.' - John Perry Barlow
What do you expect would happen when the government jails anyone who tries to compete? Yes, it is the government's fault.
Right... So did you miss the "government granted monopoly" bit?
... granted ... monopoly... So not a free market then. eh?
Monopoly:
"exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices."
Government
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A rattlesnake will bite you because it is afraid and feeling threatened. Business will screw you over because of greed.
Please do not insult rattlesnakes by comparing them to telco execs. There is no comparison.
So a company that had to build a bunch of new infrastructure to places likely to have a low volume of subscribers to subsidize said infrastructure has high prices. How is this surprising exactly?
That said, I have no doubt there was some ripping off done; I've never experienced an honest telco. But giving them a monopoly was just begging for gouging.
Sometimes at night I imagine the darkness is filled with horrible things with too many teeth, like Julia Roberts.
It's capitalism at its best. Remember, Laissez-faire Manchester type capitalism is just one flavour of capitalism. And by far not the most frequent one.
One defining characteristic of capitalism is accumulation of capital/maximizing the profit. A monopoly is a very good way to do so. (Does Microsoft ring a bell?)
This particular monopoly was a government-granted monopoly but monopolies also develop under free-market conditions. Did you never wonder why capitalism needs all this laws and regulation to protect the *free* market? I guess it's not because companies like competitors and want them to stay.
Finally, this monopoly was granted to ensure Telkom a profit for building infrastructure in remote areas. Public services are a typical problem of capitalistic economies since they tend to be unattractive for companies.
And with the monopoly granted Telkom did what a capitalistic company has to do, it maximized its profit by raising the prices.
All I can see is capitalism at its very best. Not very pretty but nothing surprising.
"Hannibal's plans never work right. They just work." Amy/A-Team
OK, on one hand, monopolies almost always abuse their power. Some actually run OK and are good for a society (public utilities like electric and gas are good examples.) I'm actually a proponent of the old-style Bell system for local phone access -- you deal with a single company who sets all the standards and keeps the network running well. The trade-off, of course, is innovation. Or so people claim.
The other side of the coin is also prevalent in telecom and other industries -- companies with a psycho executive board that has no concept of the time beyond next quarter. Too often, we hear stories of executives laying off a percentage of the workforce just to make the numbers that year. Or outsourcing things like IT or customer service because some MBA told them that these aren't "core competencies.' Try getting broadband service out of the telecom companies if you live out in the middle of nowhere, for example...it's not easy. No profit-oriented company wants to support it. This was part of the reason the phone monopoly existed, and why you still pay universal service fees on common-carrier service.
So, monopoly = bad. Unchecked competition = bad. Now what?? I would argue that #2 is better in a perfect world as long as we can reduce the focus on short-term gains. However, now that absolutely everyone is counting on the stock market/casino for their retirement, I can't see that happening. Because of that, #1 is still sometimes the best choice in our imperfect, corrupt world.
did what a capitalistic company has to do, it maximized its profit by raising the prices
thinking like that is one of the big problem I see that allows shit like this to happen. This thing called "company" you speak of does not "do" anything. it is something virtual, the point of which is to maximize profit, but no, not by raising prices. it is to charge the maximum it can for the demand. for services such as in this case, demand is close to inelastic, and competition, in an "actual" capitalistic market, would prevent this service from being actualized till supply is much cheaper. Once the government steps in and takes the competition away, hence creating an artificial supply curve, it is the government's job to dictate the prices, as we are no longer talking about capitalism. The government needs to set the supply curve if they chose to take away what brings supply lower - hence taking away the capitalism.
This is not at all capitalism. it is a capitalistic company allowed to roam free in a non-capitalist scenario. The people working for this company allowed to roam free are under contract to not steal from it's customers. It is the government's job to monitor this, if they take away competition, a vital part of capitalism. Those people broke the contract in an enron kind of way. It is the job of the government to take these people, who committed a criminal breach of contract. Forcibly the money back from from the "company" that stole it, refunding the people who were victims of criminal theft. Then prosecute the actual people that made the breach of contract decisions, and prosecute them for theft of billions of dollars. Prosecute them the same way as if they were to go into a bank and steal that amount. And revoke the company's license to exist as a company (within that country's jurisdiction).
They're doing exactly what's expected of them, and you're a fool if you think they are supposed to care more about you than their shareholders, and maybe employees.
You're a fool if you think unethical behaviour is somehow okay simply because they make money from it. I and many others expect them to act ethically.
They are "supposed" to do (whatever that means) whatever is in my and everybody else's best interests. Personally I want to live in a ethical society and will do everything in my power to penalize and control unethical companies. Most people think likewise.
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Monopolies = Industrial feudalism
All I can see is capitalism at its very best. Not very pretty but nothing surprising.
I'm hoping that last bit was ironic, as I completely agree with you otherwise.
I'm an energetic entrepreneur and a big fan of capitalism when it involves small and medium-sized businesses. Competition keeps everybody sharp and mostly honest. And I think it will work even better as the internet becomes more pervasive, as the internet helps reduce the information asymmetries that can lead to consumer exploitation.
Large companies, though -- especially ones large enough to be dominant in a market -- are often a parasitic scourge. Having both dealt with them extensively and worked inside them some, my belief is that they don't really practice what I'd call capitalism. Instead, they behave like medieval feudal kingdoms. Internally they're rigidly hierarchical and frequently wasteful, and externally they're often soulless monsters that crush the weak and toady to the strong. Well, that or they get fat and lazy.
In short, I'm a big fan of open markets and open competition, both in ideas and in goods -- just as long as it is truly open and power is distributed widely. Of course, SBC/AT&T knows fuck-all about that model, which is why we broke them up in the first place.
I just spent some time working in the disadvantaged areas of South Africa, and so I've formed a bit of affection for the nation and its people. While on the face of it I think anyone messing with these developing nations as they try to get their footing is about a pure definition of evil as can be had, I'm not aware how much this one matters. I mean, fsck SBC -- of all the people I met in South Africa, not a one of the blacks had a home phone line. But on the other hand they did all have cell phones. Vodacom and MTN were the major players, and had achieved amazing penetration -- on par with US cell phone penetration, but in an area where people still live 3 generations in a tiny 2 bedroom home.
:)
The only serious downside to having no landlines was a lack of internet connectivity -- nothing fills the early internet dialup niche: there's no flat-fee land line plans, and cell phone internet access is fairly expensive (though cheaper than in the US, I believe). So very few people are connected to the internet if they're lucky enough to have a computer. That is unfortunate. But in the end the people I met are not seriously hampered by the situation. They're amazingly adaptable, cheerful, and texting like crazy
Anyways; good luck to SA. I hope to go again some day.
What do you expect would happen when the government jails anyone who tries to compete? Yes, it is the government's fault. That's an interesting point, but it doesn't really change the sentence that you're quoting, and I would take it a step further and make the point that Russ Beaton (econ professor at Willamette University) once made: "The best economies have no monopolies but the goal of every good enterprise is monopoly; therein lies the contradiction of unlimited capitalism.". The free-market libertarians in this thread are telling me that it's not SBC's fault that it bribed government officials and/or made back-room monopoly deals, just as Russ pointed out.
Why? The government-granted monopoly was bought by a free market of greed and corruption. I'm being told that it's just the government's fault for being anti-consumer. The corporation being anti-consumer is just part of the formula for being pro-consumer. This contradiction runs to the core of their doublespeak.
I've been trying to make your exact point that free market libertarianism is incompatible with monopoly business structures as being unethical, but that's not the message the libertarians are telling me. It's just always the government's fault to them when the libertarian formula breaks down (as it often does). Even though it's the predicted end of unrestrained capitalism, it's the government's fault it was not restrained. I just want to know from the libertarians just what is allowed to be limited by the government. I know the philosophy is to limit "harm", but how is lack of communication (as in this case) truly a harm in their ideology? Are we allowed as a democracy to weigh it based on the situation? Are de-facto monopolies outlawable? To most FML's, the answer I get is often no. Maybe not with these guys, I don't know yet. Perhaps one of them will want to espouse a consistent philosophy in a comment.
And oddly enough, to the "free-market" libertarians, I'm "stupid" for thinking differently than they do. When I call an insult that I'm stupid as "naive", I'm then moderated as flamebait. Where are the mods on the clearly insulting posts? If the FML's had a point, they'd stick to the discussion and not try to attack my intelligence with petty insults. Since responding to the insults is worth down-modding, I'll probably not bother responding to posts with petty insults anymore.
Except capitalism, at least as defined by Webster, specifically includes competition in a free market. This is a case of a government mandated monoply which is NOT capitalism by definition.
Webster: "an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market"
"The opposite of the religious fanatic is not the fanatical atheist but the gentle cynic..." - Eric Hoffer
Actually, since you mention Adam Smith, the funny thing is that this is a case where he wouldn't have advised laissez-faire capitalism in the first place. In fact, the only change there to make it fully Adam Smith compliant would have been to make it a public institution, or I suppose regulate it to the point of being effectively one.
The funny thing about Adam Smith is that he may well be the most mis-understood and mis-quoted author. People seem to assume him to be the shining beacon of laissez-faire market-solves-all-by-itself proponent, especially when they themselves subscribe to that kind of a view.
He actually proposed a _lot_ of government involvement in infrastructure. Ok, so what he said is public works and institutions (remember the institutions part too), with emphasis on public works that would facilitate commerce in general. He sees it as the government's duty to provide and maintain good road, bridges, navigable canals, harbours, etc, in other words: infrastructure.
That's actually a lot of taxation and public spending to maintain that, with Britain's economy at the time when Adam Smith wrote that.
(It's funny how so many of those discussing why the industrial revolution in Britain miss the factor that their canal network was a precursor to railroads that served the same purpose: getting raw materials from here to there in large quantities and cheaply.)
At any rate, blimey, telephone is infrastructure.
If I'm allowed to go into an OT detour into his public institutions views too, he also was for public schooling (above and beyond what any country does nowadays, as it would involve a school in every parish), public health (to "prevent leprosy or any other loathsome and offensive disease"), and generally wasn't too much for a lean and cheap government the way I see it, since he has nothing against expense for "supporting the Dignity of the Sovereign". He also didn't seem too bothered by government co-ownership in some (heavily-regulated) corporations, either.
So basically, it's funny to see him quoted as some beacon of ol' school conservative laissez-faire, either by the proponents or detractors of it, when really that's not what he proposed at all.
To get back to his invisible hand, basically all he says there is what we nowadays call supply and demand. If there's a demand for product X and a profit to be made in fulfilling that demand, someone will start making more of it. You don't need the crown to tell someone to start producing X, someone will start it anyway, "led by an invisible hand." He's not horribly wrong, either: as long as the market has a certain structure, we already know that it works.
The only problem is that the ideal(istic) capitalist free market is not the perversion it tends to become when left unregulated. The assumption that the free market solves everything is based on a structure where there are many producers for each good, the different brands of goods are perfectly interchangeable (e.g., you could drop an AMD CPU into your Intel mobo if you don't like Intel any more, or could switch between Windows and BSD or Solaris without noticing any difference in what you can do with that computer), the buyers are perfectly informed, etc.
That was the only kind of market you could possibly get in the 18'th century, but nowadays it's possible to subvert it massively. And the incentive is there too. That ideal market is a commodity market, and there's not much money to be gained in it. As they say, the only way to make a small fortune in the commodity market is to start with a big fortune. The big money is in making your product non-interchangeable (e.g., by making other stuff work with only your brand of it, see: Microsoft), keeping the number of competitors low (e.g., by raising artificial trade barriers), and keeping the public as uninformed or even mis-informed as possible (e.g., marketing, PR and FUD.) So that's what the perverted direction the market tends to take by itself: if it's more profitable to do that, the succ
A polar bear is a cartesian bear after a coordinate transform.
I was a telecommunications journalist in South Africa during SBCs tenure, and I have to say things are a bit more nuanced than they may seem. SBC wasn't all bad.
;-)
In fact, it did South Africa a couple of favours. When it took up shareholding Telkom was a bureaucratic nightmare. Its technology was 18th century. I grew up with manual exchange telephones - the type where you wind a handle to reach an operator. And this up to the mid-90s.
Today we have a sophisticated ATM network with multiple national redundancy. Telkom has mature product offerings. The intelligent network initiated under SBC managers is a thing of beauty. Also, the company has a fantastic legal department
Oh, there are many things wrong, and I have called for the heads of government ministers (and Jim Meyers, funnily enough) myself. The last mile is a mess, because Telkom wouldn't spend on it.
But SBC did some good. Did South Africa overpay for that? Absolutely. But it's not like we received nothing in return.